Tag: Lawsuit

SimplyVital Health, Inc. – a healthcare- based blockchain firm – has settled with the United States Securities and Exchange Commission (SEC) over an allegedly unregistered $6.3 million initial coin offering (ICO).

According to SEC, the New England-based SimplyVital Health, Inc. planned to create a healthcare-related blockchain ecosystem, dubbed Health Nexus. The firm publicly announced plans to build its platform through the sale of its Health Cash (HLTH) token in 2017. Based on the charges brought by SEC, the commission alleges that the company raised more than $6 million through a pre-sale of its token.

Notably, the pre-sale was offered under a simple agreement for future tokens (SAFTs) arrangement – a model which is designed to simplify the ICO process and reduce the risk of enforcement actions by offering investment contracts rather than tokens. Following the pre-sale, which closed in April 2018, the firm did not move forward with the planned public offering.

Respectively, SimplyVital made use of the SAFT arrangement that stipulated tokens would not be dispersed to investors until SimplyVital created its platform. However, following the pre-sale, which closed in April 2018, the firm did not move forward with the planned public offering.

Subsequently, SEC concluded that the blockchain healthcare company had violated provisions of the Securities Act of 1933 and “did not file a registration statement with the Commission or qualify for an exemption from registration before offering and selling HLTH to the public through the SAFTs.”

Following this, SimplyVital, whilst neither admitting nor denying the SEC’s charges, has agreed to comply with SEC’s cease and desist order and will face no further penalty, as the firm had already returned to investors “substantially all of the funds raised during its pre-sale” by April 19th 2019.

According to industry sources, many had reported in 2018 that the SEC was most likely going after SAFT sales. An unnamed source stated at the time:

“The SEC is targeting SAFTs. The new approach of the SEC is to consider tokens as both utility and security at the same time, meaning a token can bring utility to a platform but at the same time can be considered as a security if you sold it to parties that mainly looked for profit on its increase in value.”

After releasing its July 2017 DAO Report of Investigation, which introduced the crypto industry to the Howey Test, the SEC has efficiently followed a consistent pattern of enforcement, which has been laid out over the last two years, and picked off one ICO after another over the unregistered sale of securities.

In public statements, Chairman Jay Clayton has stated that the SEC believes virtually every ICO ever conducted in the United States has violated federal securities laws.

Most recently, it had been reported that a U.S. District Court authorized an emergency freeze to lock up $8 million raised in an ICO by a New York citizen alongside with two of his entities. Seemingly, the SEC claimed that Reginald Middleton, Veritaseum Inc. and Veritaseum LLC had raised the funds in an ICO that was a fraudulent, unregistered securities offering.

Crypto exchange Bitfinex has allegedly lost $850 million, and in order to cover the shortfall the exchange used funds from affiliated stablecoin operator Tether, according to court files published on April 26th.

NYAG Starts Court Proceedings

The New York Attorney General, Letitia James, has revealed that the court had received court filing alleging that that iFinex Inc. — the operator of Bitfinex — Tether Limited, and their affiliates were in violation of New York law in connection with fraudulent activities, executed without the knowledge New York-based crypto investors.

According to court filings, the exchange hadn’t revealed the loss to investors, with executives of the exchange and Tether engaged in a series of conflicting corporate transactions where Bitfinex got access to up to $900 million of Tether’s cash reserves. Allegedly, Bitfinex took hundreds of millions of dollars Tether’s reserves and subsequently used them to cover up losses as well as its inability to process clients’ withdrawals.

Attorney General James has released a statement that said:

“Our investigation has determined that the operators of the ‘Bitfinex’ trading platform, who also control the ‘tether’ virtual currency, have engaged in a cover-up to hide the apparent loss of $850 million dollars of co-mingled client and corporate funds. New York state has led the way in requiring virtual currency businesses to operate according to the law. And we will continue to stand-up for investors and seek justice on their behalf when misled or cheated by any of these companies.”

Following this statement, the court has ordered that both affiliates immediately cease the dissipation of the US dollars that back tether tokens and to hand over documents for the investigation process. It further adds that both companies are prohibited from destroying potentially related documents.

Bitfinex and Tether Riposte

Meanwhile, Tether’s statement, which was a joint statement with Bitfinex, asserts that the court filings “were written in bad faith and are riddled with false assertions”, claiming that the $850 million were in fact not lost, but seized and safeguarded. It further states that both companies are currently working on getting those funds released.

Respectively, both Tether and Bitfinex insisted on having fully cooperated with prosecutors and called on the Attorney General’s Office to “focus its efforts on trying to aid and support our recovery efforts.”

Tether had previously faced a controversy in January of 2018, when critics of Tether alleged that the crypto, which had claimed to have $1 in reserve for every unit of stablecoin issued, was in reality operating a fractional reserve and issuing more tokens than it had backing for, which were then sent to the Bitfinex exchange. Subsequently, both exchanges faced a subpoena from U.S. regulators and after being ordered to undergo an unofficial audit, it was found that stablecoin had the appropriate amount of backing dollars.

At present, the Attorney General is seeking an injunction to compel Bitfinex and Tether to continue trading, in order not to harm the customers of both entities.

Cameron and Tyler Winklevoss‘s lawsuit against fellow early Bitcoin entrepreneur Charlie Shrem has been privately settled. The news was revealed via court files on April 16th.

Judge Jed Rakoff of the U.S. District Court for the Southern District of New York dismissed the case on April 5th, explaining that both parties notified the court they had reached a settlement. However, at that time both parties had been given 30 days to fully effectuate their agreement with the option of continuing to trial in case it was not fulfilled.

On April 16th, attorneys of both parties have signed a legal document, which states that the civil lawsuit is being voluntarily dismissed with prejudice, concluding that the case will not be reopened. It further states that both parties will pay their own legal fees

However, the terms of the settlement remain confidential.

The twins, who founded crypto exchange Gemini, had previously claimed the entrepreneur had stolen 5,000 bitcoins – worth about $26 million at press time – and using the crypto to buy Maseratis, powerboats and other luxury goods, which Shrem had denied.

Following the case’s dismissal, Charlie Shrem has given out a statement regarding the lawsuit:

“From day one, I’ve maintained the allegations are bogus, and they are of course. After their attorney was sanctioned and they were ordered to pay my legal fees twice, we recently reached a confidential resolution, and I’m dismissed from the case. I’m thankful for Brian Klein and my legal team and pleased to have this behind me.”

As one of the earliest adopters of Bitcoin, Shrem established one of the first prominent Bitcoin businesses within the U.S., called Bitinstant.

As previously reported, a judge had ordered the Winklevoss brothers to pay Shrem $45,000 after the District Court of the Southern District of New York reduced the scope of the twins’ claims.

Attorney Stephen Palley, a partner at Anderson Kill has stated that given the big noise with which the lawsuit has started off “this sure ended with a whimper. “

Respectively, Palley strongly believes that „this was a case that began with the plaintiffs trying to freeze and seize Shrem’s assets before he even knew that he had been sued.”

He further commented on how the case began to get worse for the plaintiff’s lawyers as they had seen the ruling overturned as well as having been sanctioned for deposition misconduct. In his opinion, he believes this to be a huge win for Charlie Shrem.

The controversial cryptocurrency exchange QuadrigaCX is, according to court documents, locked out of millions of dollars worth of digital assets it currently owes its customers, as its CEO passed away late last year, him being the only one able to access them.

Exchange Loses Access to Cold Wallets

Citing a creditor protection filing from the Nova Scotia Supreme court, the firm has been unable to locate or access the funds since CEO Gerald Cotten passed on Dec. 9, which resulted in a liquidity crisis at the exchange. As a result, QuadrigaCX filed for creditor protection in compliance with the Companies’ Creditors Arrangement Act (CCAA) on Feb. 1.

QuadrigaCX reportedly had 115,000 users, to which it owes an estimated CA $260 million ($198 million). Reportedly, it only has access to CA $375,000 ($286,000) in cash.

The exchange kept most its assets in cold wallets, which are secured by digital security keys in order to protect them from hacking and theft. With Cotten’s passing the company is now unable to access the cold wallets and the digital assets might be forever lost.

User Funds Lost

Users of the platform, some of whom were already unable to withdraw funds due to a legal battle between the exchange and a major Canadian bank, took to Twitter and Reddit following an announcement of Cotten’s passing. Some users asked for proof of death or an obituary, as there have been allegations of a scam exit by the founder.

The widow of the QuadrigaCX founder, Jennifer Robertson, has filed a sworn affidavit with the Nova Scotia Supreme Court, where she requests assistance to preempt any lawsuits that might be filed. According to her statement this could impede the exchange recuperate some of the funds lost by selling its operating platform.

Robertson’s affidavit also states,

“There have also been threats made against [her]. “Slanderous comments have been made against [her] and sent through Facebook messenger to [her] entire contact list.”

Robertson is reportedly funding the creditor protection motion herself and a preliminary hearing has been set for Feb. 5.

Two executives of the South Korean cryptocurrency exchange Komid have been sentenced to jail by Korean authorities on January 17 for their role in orchestrating fraudulent trading volume.

According to local news, the exchange’s CEO, Choi Hyunsuk, received a three-year sentence, whilst another company leader with an unspecified role, named Park, was sentenced to two years imprisonment for fraud, embezzlement and misconduct.

The fraudulent act depicted how Choi and Park had allegedly created 5 accounts through which they managed to fake 5 million transactions in order to inflate the volume, which led to both executives earning around $45 million in fees. The article quoted the judge, who stated that “the crime has damaged customers’ confidence in the virtual currency exchange and has had a negative effect on the domestic virtual currency trading market.”

This was the first time that a cryptocurrency exchange executive received jail time for faking volume.

As previously reported in December of last year, South Korea’s largest cryptocurrency exchange Upbit had been accused of faking trade volume and later denied accusations it had manipulated its order book after regulators indicted three of its employees.

According to reports from the Seoul District Prosecutors Office, at the time two senior executives from Upbit’s developer Dunamu and one Upbit employee have been indicted, but not detained. Earlier in the same month, South Korea-based cryptocurrency exchange Bithumb had also denied allegations of wash trading.

Wash trading, which is essentially creating fake trading activity, is apparently a common practice within the cryptocurrency space. Most recently, Blockchain Transparency Institute- a team of blockchain data researchers- has released a report in December that showed evident proof of wash trading across 80% of pairs on 95% of exchanges. After reviewing marketing materials, the researchers have found out that there are some firms that sell services to token teams and exchanges in order to inflate volumes. In addition to that, an analysis found that the volume per one website visit could potentially be a significant metric in identifying faked volume.

South Korea has an active cryptocurrency environment however it is also amongst the most actively regulated countries concerning the crypto space. As such, if all the exchanges that fake volume were criminally prosecuted, the implications for the crypto space could be very large.